Hawaii lawmakers vow to stabilize property insurance market amid higher premiums

HONOLULU– Hawaii lawmakers kicked off a new legislative session Wednesday with a pledge to try to stabilize the state’s property insurance market, as hurricanes, wildfires and other climate change-influenced disasters at home and elsewhere prompt insurance companies to increase rates.

Hurricanes in Florida and North Carolina and wildfires in California are impacting Hawaii’s insurance business as insurance companies purchase reinsurance (insurance for themselves) on the global market. As reinsurance rates rise in response to these disasters, some insurers in Hawaii are looking to charge more or stop offering insurance on the islands.

Insurance companies increasingly viewed Hawaii as a disaster risk state even before August 2023 forest fires on Mauibut that event only reinforced the trend, Senate President Ron Kouchi told reporters at a news conference.

The rise of several major forest fires that have destroyed thousands of structures in and around Los Angeles over the past week have only made matters worse. A preliminary estimate last week by AccuWeather, a private company that provides data on weather and its impacts, estimated damage and economic losses from the fires between $135 billion and $150 billionprobably the most expensive in American history.

The current situation is “incredibly complex and dynamic,” said Senator Jarrett Keohokalole, chairman of the Senate Commerce and Consumer Protection Committee.

“For example, we don’t have any certainty about what the Los Angeles fires are going to do to the insurance market, in part because the fires haven’t even been put out yet,” he said.

“It is unclear at this point if we are at the bottom or if things could get worse,” the Democrat said. “What we can expect is that these increasingly large-scale disasters will continue to increase in frequency, and we need to be prepared for that.”

Senate Democrats will propose restarting programs started after Hurricane Iniki hit Kauai in 1992 and upended property insurance for years. At the time, the state set up a fund to provide residents with hurricane insurance.

The Hawaii Hurricane Relief Fund was established after Iniki provided hurricane coverage to 155,000 policyholders statewide for a decade until private insurers returned to the market. The state paid the fund through policyholder premiums, assessments on licensed property and casualty insurers, a special mortgage registration fee, and a surcharge on premiums for policies issued by licensed property and casualty insurers.

The state authorized the chief financial officer to issue bonds to help the fund operate, but these were never issued.

Keohokalole said the state has limited resources and could not guarantee such a program would lead to prices homeowners are used to. It’s important for homeowners in Hawaii to be able to buy insurance locally, he said.

“We cannot expect kupuna from fixed income earners or from families who are currently struggling to afford what the global market dictates, while Hawaii is a state at risk of tsunamis, a state at risk of wildfires and a state at risk of hurricane,” he said. using the Hawaiian word for elders.

In the longer term, he said, lawmakers should discuss the resiliency and fire safety measures homeowners can take so they can better withstand disasters.

Hawaii condominium owners have been hit particularly hard by instability in the insurance market.

Testimony before the Legislature last year said condo boards were increasingly choosing to reduce the amount of their insurance coverage because they could not afford higher premiums. But Fannie Mae and Freddie Mac, which buy home loans from banks and other lenders, will only buy mortgages for units in buildings that are insured up to full replacement cost. This means that banks are unwilling to lend money to buyers of these apartments.

One witness said between 375 and 390 condominium buildings in Hawaii were underinsured against hurricane risk.

Keohokalole said it was imperative that lawmakers “deliver something” during this session, which ends in May.

Kouchi, also a Democrat, noted that without insurance, people would not be able to get a mortgage and would have to pay cash to buy a home. He said that would be a “huge barrier” to homeownership in a state where the average price of a single-family home is more than $1 million in most counties.

The wildfires in Los Angeles are also tests California’s insurance market, where major insurers have withdrawn property coverage climate change makes forest fires, floods and storms more common and damaging.